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Tuesday, January 19, 2010

Why Auto and Home Insurance Rates Will Go Up In 2010

The economy is in the tanks, your home is not worth what it was 5 years ago, unemployment is at all-time highs, AND your auto and home insurance will most likely get MORE expensive during 2010. I know you don't like hearing it, and I promise I don't like saying it, but it is true. Although it won't help with the rising costs, it may be helpful to know what's behind the price increases so that it doesn't feel so personal when you open your renewal paper work and write that bigger check. Also, knowing why things are going up will give you a better understanding of how to bring your insurance rates back down (or at least minimize the increase). There are three reasons you'll see higher prices this year, which are:

Small profit margins are destroyed by big storms: I know this may be surprising (I'm using my sarcastic voice), but insurance companies are in business to make money. No shocker, I know, but what most people don't know is how extremely small an insurance company’s profit margin really is. If an insurance company can make it through the year with a 99% combined ratio - meaning they only spent 99 cents out of every dollar they brought in - then they are happy. If they finish a year and they've been able to keep a nickel out of every dollar, they're on top of the world. The industry is SO competitive and SO expensive, that most companies are literally striving to keep a couple of pennies in profit out of each dollar they bring in. So when a large storm - like the two hail storms Colorado saw during the summer of 2009 - adds another $25,000,000 in expenses for the year, the profit for the year is gone. When it happens repeatedly (there have been 4 major storms in Colorado over the past 2 years), insurance companies have no choice but to raise the prices to try to make a couple of pennies per dollar again.

Rising material costs: If your home value is going down, why on earth would your home insurance go up this year? The reality is that insurance companies do not care what your home's value is on the open market. They are NOT in the business of buying and selling homes, they are in the business of repairing and rebuilding homes, and those costs have gone up tremendously over the past 24 months. Lumber, concrete, roofing materials, copper, wiring, etc. - all the materials used to repair and rebuild your home if it is damaged or destroyed costs 50% more to purchase today than it did a few years ago. Add in the changing codes and methods that must be followed during repairs (i.e. t-lock shingles are no longer used, so if you got a new roof this last year the old roof had to be completely torn down and the new shingles started from scratch) and you've got a more expensive environment to operate in if you are an insurance provider. The same situation holds true for your car repairs.

Rising liability and medical costs: I know you are aware of how expensive medical costs have become over the past decade. Every year your health insurance costs more than the year before, and so do the doctor's visits and hospital stays, the ambulance rides and follow up care, and everything else associated with health care. The same holds true for legal costs. There are more lawsuits filed every year, and for larger amounts. Every second commercial on TV is for an attorney that can "get you a check" every time something goes wrong. All of the extra medical and legal expenses may go to your insurance companies, but they are paid by the consumers - me and you. If there is not enough money brought in to pay the rising costs AND keep a couple pennies per dollar for profit, then everyone has to pay more until there is. This problem has seen a dramatic increase over the past few years, meaning we will all continue to see our rates go up in 2010.

So now you know. It may seem like your higher costs are just a case of the greedy insurance companies trying to get you for everything you've got, but the truth is it's nothing personal. Most insurance companies have not made ANY profit over the past few years; in fact they've lost quite a bit. I'm not saying it's time to start feeling sorry for the insurance providers - we all know they'll make it through just fine - I'm just trying to set some realistic expectations for everyone in Colorado when it comes to your insurance prices.

Now for a bit of good news - there are some ways to fight off some of the rising costs, IF you're willing to make some adjustments to your insurance programs. Here are 3 quickies to get you started:

Raise your deductibles: I know you've heard it before, but it really is one of the fastest, easiest ways to cut your insurance costs. Most insurance company’s rates are based on $1,000 deductibles, so every time you lower your deductible below $1,000, your price goes up.

Double check your discounts: There are more discounts available today than ever before, including some for where you work and what kind of work you do. Have a discount discussion with your agent to review your program and make sure you're getting everything you deserve.

Combine policies: Another oldie but goodie. Combining policies under one company has never made more sense than now. Insurance companies have new statistics that show the more policies you have with their company the less likely you are to file claims. The result, lower insurance rates and more rewards for consumers who package all their policies with one company.

Sit down with your local, professional agent today and discuss your options. An annual review is an opportunity to have your overall program reviewed and look for little tweaked that will help you find the best value - the proper coverage, at the best possible price.

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